The tariff offensive led by Donald Trump since his return to the White House has quickly shifted into a face-off with China. Following a cycle of announcements and retaliation, the extra-tariffs applied by the United States to China amount to 145%, compared to 125% in the opposite direction. The shock is of unprecedented magnitude, and the two superpowers are engaged in a negative-sum game.
Since June 2022, the U.S. Federal Reserve has largely reduced its holdings of U.S. Treasury debt as part of its quantitative tightening program, or QT, after having massively expanded them between March 2020 and May 2022, as part of its quantitative easing program, or QE.
The tug of war between the United States and the European Union has begun. On March 12, the US administration raised tariffs on imports of aluminum and steel by 25%. In response, the EU has announced that it will reinstate, in mid-April, tariffs introduced during Donald Trump's first term, suspended since 2020
In recent weeks, with the erratic announcements and implementation of the first Trumponomics 2.0 measures, a less favorable wind has been blowing across the US economy, whether it be Main Street or Wall Street. Between rising fears about inflation and growth, how long can the Fed extend the status quo on its policy rates?
The German elections of 23 February have high stakes. German GDP has been stagnating for three years and production capacity in the manufacturing sector has suffered its first decline since reunification. The question of the relevance of the German territory as a production site (standort deutschland) was again raised. In this context, will these elections open a new era (zeitenwende) in German economic policy, as was the case with the Hartz laws twenty years ago? Two main issues will need to be monitored: the reform of the debt brake and the decrease of energy costs.
In France, we could think that the increase of public debt is a general consequence of the Covid-19 crisis. However, the chart we are commenting here shows that it is not.
2024 was marked by further progress in disinflation, in both the United States and the Eurozone, sufficient to pave the way for rate cuts. However, 2025 may be quite different from 2024, with expected divergent inflation trajectories between the United States and the euro area and, therefore, a decoupling of monetary policies (extended status quo for the Fed, continued gradual rate cuts for the ECB).
The U.S. Foreign Trade is structurally in deficit.In 2023, the deficit in the balance of goods exceeded one trillion dollars, which amounted to 3.8 percent of GDP.While this may be seen as a reflection of the strength of the American consumer, Donald Trump analyzes it as the result of ‘violent treatment’ and ‘abusive practices’ from his trading partners.
For the time being, Donald Trump has not specified his intentions on banking regulation. However, there is a risk that he will push for an incomplete translation of the finalisation of Basel 3 into US law. This would undermine efforts to harmonise international prudential frameworks and introduce significant distortions of competition between US and European banks.
While the German economy continues to underperform and France remains in a middle ground, Southern European countries have become the driving force behind economic momentum in the Eurozone.
The Autumn Budget, unveiled by Rachel Reeves on October 30th, attempts to reconcile fiscal adjustment, support for public services and strengthening of UK’s potential growth.
On the global oil market, we currently have a slightly dynamic demand. China's oil demand in particular which represents around 15% of the global oil demand.
The issue of public finances and their rebalancing has come to the fore, particularly in France, but not only. This problem concerns many other countries, most notably the United States.
Germany and France follow different trajectories in terms of fiscal consolidation. The latter is more involved in Germany, where debt is more moderate. However, this is accompanied by a reduced support for the greening of the economy and a GDP stagnation over the last two years. In France, where public debt is higher, maintaining strong fiscal support has been accompanied by an increase in savings. The literature points out that, in this context, fiscal consolidation based on lower spending could support growth.
In September, the U.S. Federal Reserve at last followed suit with the ECB and the Bank of England and cut its policy rates for the first time since March 2020. But the Fed marked its difference, favoring a significant 50-basis-point cut instead of a more gradual 25. At least on that point, the suspense is over. But the rest of the story has yet to be written.
In the second quarter of 2024, Turkish growth fell below 3% year-on-year for the first time since 2019. On a quarterly basis, GDP even remained stable. Without the positive contribution of foreign trade and inventories, GDP would even have fallen.
Growth and inflation figures in the UK have surprised favourably since the beginning of the year. These results are of course welcome, but they do not reflect a genuine recovery in the economic situation across the Channel.
The Chinese export sector has weathered well the rise in trade tensions and tech rivalry with the US since 2018. The Chinese industry has shown a solid capacity to adapt to the increase in trade barriers and it has kept its leadership position in global trade.
In Central Europe, 5-year government bond yields have broadly toned down since the last peak observed in 2022, amidst acute geopolitical uncertainties.
Human activity is highly dependent on information. What to eat? Which movie to watch? Where to travel? What to study? Where to work? It all depends on information. The same applies to economic activity, where information has a crucial influence on business strategy: which products and services should we provide? Where should we produce them? How should we sell them? What is the marketing strategy? At which price? Et cetera.It also influences economic policy by governments, by central banks, and of course, information has a profound impact on the functioning of financial markets.
According to the expression “goods things come in threes”, France would meet Germany for the third time in the three lasts Euro football tournaments and win a third consecutive success. On the economic front, French results have already outpaced German results in three important areas over the past five years: job creation, investment growth and the transition to services. As a result, it is not surprising that France generated an additional 0.5 percentage point growth per year compared to Germany.
In recent weeks the guidance from several ECB Governing Council members had become increasingly clear that the June meeting would see its first rate cut in this cycle. Against this background, not acting was out of the question, despite the uptick in the latest inflation data.
Because it relies on fossil energies, 80% of the energy mix around the world, economic activity produces greenhouse gas, mainly carbon dioxide which contributes to global warming. This phenomenon, theorized two hundred years ago by French mathematician Joseph Fourier, and which the IPCC, the International Panel of experts on Climate Change, has been describing for thirty years to alert us is no longer contested.
It is highly likely that this year the ECB will cut its policy rate before the Fed does. This sequencing has become a topic of debate amongst central bank watchers, as if the ECB would be jumping the queue and refuse to wait in line until the Fed has eased policy. Does it matter if the ECB cuts rates before the Fed? The answer is no.
In the first quarter, real GDP growth in the United States and the Eurozone was almost on a par, at a quarterly rate of 0.4% for the United States and 0.3% for the Eurozone, according to initial estimates. However, on a year-on-year basis, the situation remains very much to the United States’ advantage, with growth of 3% when Eurozone growth is only 0.4%.
